Stock funds invest chiefly in the equity of publicly traded companies with the objective of long-term growth, primarily through capital gains. They are actively or passively managed and focus on a certain market sector, on small-, mid- or large-[glossary_mark id="70817"]cap[/glossary_mark] [donotmark]companies[/donotmark], and on growth and value factors.
Bond funds invest primarily in capital market debt and are classified by their issuer as [donotmark]government, agency, municipal or corporate[/donotmark]. They are further classified according to the portfolio's credit quality, [glossary_mark id="51474"]sensitivity[/glossary_mark] or some other feature.
A money market fund comprises a portfolio of short-term money market instruments, such as treasury bills and commercial paper. It typically pays dividends that reflect short-term interest rates.
A mixed fund is one that invests in a mixture of different asset categories, typically equities and bonds. They are principally used for tax purposes, but also to limit risk exposure.
| Four Main Fund Categories |
| 1. Equity |
| 2. Bond |
| 3. Money Market |
| 4. Mixed |
| Source: EFAMA |
An actively managed fund engages professional asset management to construct and continuously manage a portfolio of [donotmark]assets[/donotmark] with the objective to outperform the market. Fund managers pick [donotmark]assets[/donotmark] that are consistent with the fund's overall investment objective, which is typically to produce better returns than index funds.
A passively managed fund is constructed to achieve returns that closely correspond to its reference market index, such as the S&P 500 or FTSE China 50, without active management. The fund manager buys and holds securities of the benchmark index without further investment decisions, possibly using derivatives to help achieve the investment objective.
[glossary_mark id="70756"]Growth[/glossary_mark] is an investment strategy of a stock fund that invests in shares with a record of growth and the potential for an increase in value. The [glossary_mark id="70758"]value[/glossary_mark] strategy is to select shares that are attractively priced relative to the [donotmark]company's[/donotmark] earnings or internal value or to the market. [glossary_mark id="70760"]Blend[/glossary_mark] is an investment strategy that is neither growth nor value.
